International Donors and the exporting of 19th Century Poor Relief to developing countries

March 27, 2018

     By Duncan Green     

This post comes from Stephen Kidd, Senior Social Policy Specialist at Development Pathways

Early last year, the UK’s Daily Mail newspaper expressed its concern that the UK’s Department for International Development (DFID)  was exporting ‘the dole’ – in other words, a welfare system for the poor – to developing countries through its financing of a range of ‘cash transfer’ schemes across Africa and Asia. The newspaper not only claimed that this money could be better spent in the UK but that DFID was creating ‘poverty traps:’ in other words, it was encouraging recipients to become lazy and stop working. It was similar to the oft-heard (if mistaken) critique by right-wing politicians in developed countries that poor people refuse to work and prefer to live off welfare benefits.

The UK’s support for cash transfers is part of a wider trend of growing investment in social security across many developing countries. As in high income countries – where large investments in social security have transformed societies since the middle of the 20th Century – these schemes have had significant positive impacts on recipients, reducing hunger, improving nutrition, facilitating higher school attendance, and supporting investments in agriculture and micro-enterprises.

However, the concerns of critics, such as the Daily Mail, should not be dismissed out of hand. The type of ‘welfare system’ promoted by many donors bears all the hallmarks of poor relief, a primitive form of welfare implemented by many developed countries between the 17th and 19th Centuries, when democracy was weak. Poor relief – as the name suggests – was targeted at those living in extreme poverty but paid for by the middle class, who were excluded from the schemes. Unconditional transfers were given to the so-called ‘deserving poor’ – in other words, those unable to work – while the working-age poor were regarded as ‘undeserving’ and forced to enter the  workhouse (think Oliver Twist).

Yet, as democracy strengthened, poor relief was increasingly opposed by most of the population – including the main taxpayers – and, instead, countries began building modern social security systems offering support across the lifecycle, addressing challenges such as old age, disability, childhood, widowhood and unemployment. Hence the growth of old age pensions, disability benefits and child benefits, which – as Figure 1 indicates – nowadays form the core of social security systems in almost all developed countries. These schemes received strong support, not only because they effectively reached the ‘poor,’ but because they also offered all citizens access to social security at the times in their lives when they most needed it.

Figure 1: Levels of investment in social security in high-income countries, disaggregated by target groups

Levels of investment in social security in high-income countries

Despite the criticism by neoliberals of ‘welfare’ for the poor, the core lifecycle social security schemes in developed countries continue to be strongly supported, with average spending at 12 per cent of GDP.

The poor relief schemes promoted by donors in developing countries contrast sharply with the modern inclusive, lifecycle social security systems found in high-income countries. Not only are they targeted at the poorest – thereby excluding most citizens – their use of sanctions and workfare incorporates many of the characteristics of 19th Century poor relief.

This modern-day poor relief is highly flawed. Although programmes target the ‘poor,’ the majority of those living in poverty are excluded since it is impossible to identify the poorest households in developing countries. The selection of recipients appears arbitrary and is not understood by community members, often resulting in conflicts, broken relationships and, in some cases, violence. So, while the benefits of cash transfers are real for those lucky enough to receive them, large numbers of equally deserving people miss out.

However, the story of social security in developing countries does not stop with the poor relief favoured by donors. Many developing country governments are building their own social security systems, following the lifecycle model of developed countries, focusing initially on old age pensions, disability benefits and child benefits. The largest schemes are universal old age pensions which are now found in around 39 developing countries, including Bolivia, Lesotho, Mauritius, Georgia, Namibia, Nepal and Thailand, with Kenya planning to join the club in early 2018. A small number of countries have introduced child benefits, including Mongolia which provides children with around $10 per month. The level of investment can be relatively high: South Africa invests 3.4 per cent of GDP in its system of old age, disability and child benefits; investment in Georgia is now more than 6 per cent of GDP, mainly in an old age pension; and, even Nepal, one of the world’s poorest countries, invests almost 2 per cent of GDP in lifecycle benefits. In contrast, spending on poor relief schemes is rarely more than 0.4 per cent of GDP, and usually much less.

In contrast to donor-supported poor relief, inclusive lifecycle schemes in developing countries are popular, as evidenced by their relatively high budgets. This is because they are offered to everyone rather than an arbitrarily selected group of ‘the poor.’ In countries with democratic electoral systems, their popularity can play a key role in helping politicians win power. Furthermore, the impacts of the lifecycle schemes are much greater than poor relief: so, while the Philippines’ Pantawid poor relief programme reduces the national poverty rate by less than 5 per cent, the decrease in South Africa is 42 per cent (see Figure 2). And, of course, since most inclusive, lifecycle schemes are open to everyone, they are much more effective than poverty targeted schemes in reaching the poor.

Figure 2: Impacts on the poverty rate across age groups by the Philippines Pantawid programme and South Africa’s social grants

Impacts on the poverty rate across age groups

Unfortunately, some donors have attempted to undermine the more progressive schemes introduced by developing country governments, calling instead for poverty targeting. For example, the IMF, World Bank and Asian Development Bank have recently forced Mongolia to introduce targeting into its highly successful universal child benefit while the World Bank proposes the targeting of Namibia’s universal old age and disability benefits, despite recognising their significant impacts on poverty and inequality.

Other donors, in contrast, are, occasionally, supporting more progressive, universal social protection. For example, in Uganda, for the past six years DFID and Irish Aid have funded a universal old age pension in 14 of the country’s districts. The scheme is almost certainly DFID’s most successful cash transfer scheme and has been highly effective in reducing poverty, tackling child undernutrition, helping children attend school and stimulating local economies. It is also very popular, with strong support from Parliament and the national population, and is frequently discussed and promoted in the media.

In contrast to poor relief, such schemes are popular and likely to generate support for investment among the governments of developing countries, in particularly where democracy is strengthening.  Investment in schemes such as old age, disability and child benefits will also strengthen social cohesion in fragile states, boost economic growth, reduce poverty and tackle inequality.

The lesson is clear. Donors should stop undermining universal schemes in developing countries and get behind national governments, supporting them in building modern, effective and popular social security systems rather than imposing on them 19th Century poor relief, which has already been shown to fail in developed countries.